PremierInvestor.net Newsletter Wednesday 05-12-2004 section 1 of 2 Copyright (c) 2004, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section one: Market Wrap: Markets Slip on Oily News but Barton Biggs Bounces Them Watch List: CHS, KIND, WOOF, CDWC Trading Ideas Value Plays With Bullish Signals Breakout to Upside (Stocks $5 to $20) Breakout to Upside (Stocks over $20) Breakout to Downside (Stocks over $20) Recently Overbought With Bearish Signals (Stocks over $20) =============================================================== MARKET WRAP (view in courier font for table alignment) =============================================================== 05-12-2004 High Low Volume Advance/Decline DJIA 10045.16 + 25.69 10048.21 9852.19 2.02 bln 1439/1402 NASDAQ 1925.59 - 5.76 1927.23 1878.77 1.84 bln 1390/1687 S&P 100 537.17 + 1.17 537.30 526.53 Totals 2829/3089 S&P 500 1097.28 + 1.83 1097.55 1076.32 RUS 2000 548.99 + 0.32 549.28 534.41 DJ TRANS 2847.34 + 11.17 2850.01 2787.88 VIX 18.14 - 0.43 20.41 18.14 VXO 18.76 + 0.27 21.32 18.48 VXN 27.62 - 0.13 29.34 27.49 Total Volume 4,554M Total UpVol 2,172M Total DnVol 2,306M 52wk Highs 36 52wk Lows 412 TRIN 0.92 PUT/CALL 1.12 =============================================================== =========== Market Wrap =========== Markets Slip on Oily News but Barton Biggs Bounces Them Linda Piazza Despite the conjectures of one television commentator, Barton Biggs' assertion that the markets were primed for a big bounce, only moments before that late-day bounce occurred, did not prompt the gains. Here's what more reasoned thinkers believe happened. Annotated Daily Chart of the SPX: After a day in which the SPX had at one point lost more than 19 points; the Dow, more than 167; the Nasdaq, more than 52; and the Russell 2000, more than 14, the bounce proved impressive, whatever produced it. The early losses proved just as impressive. U.S. investors woke to the news that June crude oil had traded above the benchmark $40.00 level on the New York Mercantile Exchange, to its highest level since 1988. Although Asian markets had moved higher in the overnight session, with the Nikkei gaining an impressive 2.26 percent after bouncing from its own 200-dma, European markets had headed down. To make matters worse, the International Energy Agency, the IEA, released a report estimating that global use of fuels would rise more than expected, at the same time saying that inventories of crude and fuels held by the thirty member nations of the Organization for Economic Cooperation and Development, the OECD, fell in the first quarter. The IEA also trimmed its estimate of oil supply from countries outside OPEC. Saudi Arabia has been urging OPEC members to increase production, with OPEX ministers to meet informally beginning March 22. Some question whether production can keep up with surging demand, however. China's growth has bumped it up to the number two oil consumer, ahead of Japan, with the IEA concluding that China's recent measures to cool its economy would not significantly cut its oil consumption. Although some deemed the number less inflationary than expected, the U.S. doesn't look ready to cut consumption, either. The 8:30 EST release of the U.S. trade deficit revealed a 9.1 percent widening of that deficit with imports rising faster than exports. March sales of U.S. goods and services to other countries hit a record $94.70 billion, growing 2.6 percent, with that figure deemed good news for manufacturers. What was not good news was that all-time high in the U.S. trade deficit, rising to $45.96 billion in March against estimates of $42-43 billion, up from the revised-higher $42.12 billion in February. That was far less than the 4.6 percent increase in imports to a record $140.66 billion. Although more attention usually focuses on exports than imports because the imports component of this number lags other measures of domestic demand, the surging consumer goods component of the imports growth did not go unnoticed. That represented $2.6 billion of the increase, as Jim reported in the Market Monitor. Also worrisome was another reason for the widening gap, the increase in the country's petroleum deficit to $12.50 billion. Against that background, Chicago Federal Reserve President Michael Moskow spoke on CNBC Wednesday morning. Responding to a question about inflationary pressures, he termed those pressures "transitory." When asked about the downturn in manufacturing, Moskow thought that downturn had been cyclical rather than secular, although he added that the downturn had still been painful, especially in the Midwest where manufacturing assumed exaggerated importance. Other market watchers might have quibbled with Moskow's market- calming words, with one analyst quoted in a Marketwatch report suggesting that any deficit was inflationary, whether from a budget or a trade deficit. Joel Naroff, an independent economic consultant, was quoted in a separate Marketwatch report as saying, "Dear Mr. Greenspan: The whites of inflation's eyes are now coming into view." Roy Blumberg, analyst with Sterne, Agree & Leach, attributed the early weakness to interest-rate concerns rather than those related to the oil prices. Blumberg commented that concerns about interest rates, Iraq, and oil costs alternate from day to day to pressure the markets. He felt that the interest-rate concerns factored highly in Wednesday's weakness, but were overdone, and that it would take a two percent increase before rates would dampen growth. The effect is psychological, he theorized, but many would argue that the markets instead are discounting the effect of interest rates many months in the future. Ten-year bond yields had been dropping prior to the U.S. trade deficit data, but steadied afterward and ended the day higher. An auction of five-year notes showed foreign demand lower than it had been for the last several auctions, sending bond prices lower and yields higher. Annotated Weekly Chart for Ten-Year Yields: As Jim also reported in the Market Monitor Wednesday morning, mortgage applications dropped to 742.2 from 780.0. Homebuilders have been reeling, with the DJUSHB, the Dow Jones US Home Construction Index, depicting how the specter of higher interest rates has affected the homebuilding industry. While the SPX and other indices hit support levels today, the DJUSHB was hitting one of its own. Annotated Weekly Chart of the DJUSHB: As the DJUSHB's chart depicts, Wednesday's bounce was not unalloyed good news, and won't be until the index moves above a possible right-shoulder level near 628. Until then, the index remains in danger of rounding over into a right shoulder and then confirming that H&S. As the chart depicts, oscillators have already broken through their own H&S formation, perhaps predicting weakness ahead for this index and for stocks related to the sector. As always, price action will be the final guide, while we let this oscillator action serve as a warning of what could happen. Even before the Barton-Biggs-inspired or SPX-inspired bounce, hints had surfaced that a market bounce could be coming. You've read those hints on these pages, as writers warn of building oversold pressure. More specific evidence surfaced. Early in the trading day, I noted that the BIX, the S&P Banks Index, was not following other indices to their tests of yesterday's lows. Although trading minimally lower, it hovered near the top of the previous day's range, finally breaking above Tuesday's high and then the 200-dma. The BIX shares some big-cap names with indices such as the OEX, so that OEX bears were warned to watch the BIX's behavior. That bounce will soon bring the BIX up to a test of a violated regression channel, however, with that test occurring at about 334-355, and with the BIX closing at 332.50. That bounce coupled with approaching resistance describes a problem for many who might be examining charts after Wednesday's close. Many indices now head straight into presumably strong resistance. The SPX bounce moved it into the midpoint of the range between the supporting 200-dma and the presumed resistance from a broken support line at about 1112. Two questions arise. Will there be follow through on the late-day bounce? Have markets seen their lows? Possibly, and I don't know. Examining market breath for clues reveals that, despite the late- day bounce, market breadth was mixed. On the NYSE, advancing issues beat declining issues by a moderate 17:16 ratio. Up and down volume was matched equally, but new lows trumped new highs with new lows at 208 and new highs at 8. On the Nasdaq, advancing issues numbered fewer than declining ones, with the adv/dec ratio at 14:17. Down volume proved stronger, too, on that exchange, at 1.7 times up volume. New lows measured 100 and new highs, 21. That picture does nothing to clarify the forecast for tomorrow or the next few days. Neither does the behavior of the SOX, often a leading indicator for the tech-related indices. Although the SOX bounced strongly with other indices, it did not manage a positive close. Despite the loss in the SOX, the Nasdaq closed higher, bouncing from near 1880, but it heads into resistance of its own and may be forming a congestion zone between the 1880 support and the 200-dma. Annotated Daily Chart of the Nasdaq: The Dow's bounce sent it back above its 200-dma, but the bounce stopped at nearest resistance, and the Dow will face resistance again at 10,200. Annotated Daily Chart of the Dow: Finally, to add more fuel to the mix (pun intended), as was mentioned in the Futures Monitor on the OIN site, the $40 price for crude oil has served to stop every advance in crude oil prices for more than thirty years. Intraday crude futures reached a high of $40.92, and closed at a 13-year high, at $40.77, depicting crude oil prices as being at a key level. Crude oil prices and ten-year bond yields have reached strong resistance, zones from which they will either break out or roll down. Most indices bounced strongly, but remain below key resistance, and the potential reversal signals require confirmation from tomorrow's action. The Dow, SPX, and COMPX all have room to run before crashing into that next strong resistance, allowing room for a day or several-day run higher before they do so. We won't know whether today's bounce was anything more than an oversold or technical bounce, as some were already labeling it this afternoon, until that follow through results and then those overhead resistance levels are breached. The Russell 2000 may provide the first peek at how that overhead resistance will be handled, as it appears close to testing important resistance. Annotated Chart of the Russell 2000: Market watchers would do well to watch crude prices, ten-year yields, and the Russell as first indicators of market action tomorrow. A downturn in crude prices and ten-year yields may allow for an equity bounce to retest resistance and relieve oversold pressure. Since the SPX's touch of the 200-dma proved so important in today's action, that level should be watched, too. After-hours trading saw the NDX pull back from gains made in the late-day push. In other after-hours news, Disney (DIS) traded higher after its Q2 report. Thursday's earnings reports include tech bellwether Dell as well as BEA Systems. Economic reports due Thursday include April's include PPI and Core PPI, 4-week jobless claims for the week ending May 8, April's retail sales and ex-auto retail sales, all to be released at 8:30 EST. Although the market typically pays more attention to the Core PPI, the prices paid component that excludes food and energy, the inclusive PPI figure might draw some attention this week, too, as concerns about crude oil prices have factored so strongly in recent market declines. Market expectations for PPI range from a 0.3-0.5 percent gain, against March's 0.4% gain, while estimates for Core PPI mostly center on a 0.2 percent climb, up from March's 0.1 percent gain. Estimates for the initial claims number are at 325 thousand, with the previous number at 315 thousand. ================================================================== WATCH LIST ================================================================== The PremierInvestor.net watch list is not designed to be read as full fledged stock picks. Rather we would prefer to offer it as an extra tool in today's investor toolbox. Think of it as a radar screen with your own radar operator pointing out interesting developments, technical patterns or potential plays that you may or may not have seen on your own. Due to time constraints we do glance at the news but rarely do we have time to fully read pertinent news stories, due background research and other necessary screens that investors should do before making a decision. A common exercise is to read the entry, glance at the sector and other stocks in that industry and then compare what's happening in the stock to what's happening in the broader market indices. We hope you enjoy the Watch List and that it proves to be a useful tool for your own trading success. STOCKS WORTH WATCHING --------------------------------- Chico's FAS - CHS - close: 39.58 change: -0.08 WHAT TO WATCH: It seems everything is flirting with its 200-dma lately and CHS is no different, as the stock is trying to find support near $38, just over the 200-dma. We're looking for one more rebound with a failure in the $40-41 area to set up solid bearish entries prior to the subsequent breakdown through the 200-dma and continuation down towards strong support at $32. --- Kindred Healthcare - KIND - close: 48.35 change: +2.70 WHAT TO WATCH: On the surface yesterday's drop and today's subsequent strong rebound might look like an opportunity for the bulls. But with the strength of resistance in the $49-51 area, the 50-dma at $50.37 and a fresh PnF Sell signal with a downside target of $34, odds favor the bears right now. Target entries on a rollover from resistance, using a tight stop at $52 and targeting an initial drop to the $40 level. --- VCA Antech Inc. - WOOF - close: 41.60 change: +0.93 WHAT TO WATCH: A bit extended on the long-term charts, WOOF has been in that condition for many months now. But it is the near-term price action that catches our attention. After the big drop this morning, the stock came roaring back into the close, actually ending at a new all time high on huge volume. While it's an aggressive play, we like targeting entries on a move through today's high, looking for steady upside continuation in the rising channel. Target a rally to the $47-48 area by mid-June. --- CDW Corp. - CDWC - close: 63.29 change: -0.54 WHAT TO WATCH: After a serious breakdown at the end of April, CDWC has been trying to build a new base above the 200-dma for the past couple weeks. The way the stock has been bouncing off the 200-dma over the past couple days, it looks like this is the place where we can expect the rebound to materialize. But we don't want to try to play the upside. There's major resistance near $66.50, and with the 100-dma and 50- dma converging on that level, we should expect a rollover if price reaches that level. Target entries on that rejection at resistance and play for a drop first to the 200-dma and then a break down to the $58 level, the site of the bullish support line. ================== Trading Ideas ================== This section contains stocks that meet criteria which may make them of interest to long and short side traders. These are not recommendations, nor have they been reviewed by PremierInvestor editors for investment potential. However, each of them has technical and fundamental characteristics that make them worthy of further review by traders and investors looking for fresh ideas. New stocks will appear daily following the market close. Value Plays With Bullish Signals --------------------------------- Ticker Company Name Close Change C Citigroup 46.31 +0.62 TOT Total Sa (ADS) 92.87 +0.51 NTT Nippon Tel & Tel (ADS) 23.12 +0.68 WFC Wells Fargo & Co New 55.90 +0.80 BAC Bank of America Corp 80.34 +1.91 FNM Fannie Mae 70.08 +0.57 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- None --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- MATK Martek Biosciences Corp 70.79 +2.78 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- TM Toyota Motor Corp (ADS) 69.70 -1.85 MO Altria Group Inc 49.80 -3.60 BSY British Sky Brdcstng Grp 44.42 -1.66 ZMH Zimmer Holdings 79.75 -1.15 STJ Saint Jude Medical Inc 71.40 -2.30 WIT Wipro Ltd (ADS) 41.00 -1.14 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- None ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright 2004 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Wednesday 05-12-2004 section 2 of 2 Copyright (c) 2004, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section two: Stop Loss Adjustments: VRSN Net Bulls (Tech Stocks) New Bearish Plays: ISIL High Risk/Reward New Bullish plays: MAGS Stock Splits Announcements: BPOP, NOC ================================================================== Stop Loss Adjustments ================================================================== VRSN - long Adjust from $15.90 up to $16.50 ================================================================== Net Bulls (NB) Tech Stock section ================================================================== --------- New Plays --------- New Bearish Plays ----------------- Intersil Corp. - ISIL - close: 18.67 change: -0.89 stop: 20.50 Company Description: Intersil Corporation is a global designer and manufacturer of high-performance analog semiconductors and a supplier of power management solutions for all computing platforms. The company's portfolio primarily addresses four markets: power management, optical storage (CD and DVD recordable), flat-panel displays and wireless networking. ISIL brings added customer value in wireless networking by providing complete silicon, software and reference design solutions to new products that enhance the computing experience. Products are organized into three product groups: power management, Elantec and standard analog. Why we like it: Semiconductor stocks haven't exactly been a bastion of strength in recent weeks, leading the overall Technology sector lower since early April. Shares of ISIL have been stubbornly holding support near $19 for over a week, as the SOX has rebounded back towards resistance. When today's drop commenced in the SOX, that was the straw that broke support on ISIL, with the stock slipping under that key support level and never being able to reclaim it. Today's breakdown simply confirms the picture that we've been seeing on the PnF chart, as the stock has been on a PnF Sell signal for months and the recent break below $20 solidified the bearish view by breaking price under the bullish support line. The price objective from the PnF chart is $17 and we can certainly see support for that idea from the daily price chart, with strong support coming in near $16.50 at the bottom of the April 2003 gap. With the breakdown under support having already occurred, we don't need a trigger for this play. Conservative traders can look for rollover entries in the $19.00-19.50 area, while the more aggressive approach will be to step into the play on a break below today's $18.33 low. While there's the potential for some support to be found at the top of the afore-mentioned gap ($17.50), we're betting on more weakness than that and will set our sights on a drop to the $16.50 level. Initial stops should be set at $20.50, just over the intraday highs from last week as well as the level of the 20-dma ($20.58) by tomorrow. Annotated Chart of ISIL: Picked on May 12th at $18.67 Change since picked +0.00 Earnings Date 4/21/04 (confirmed) Average Daily Volume = 2.20 mln ================================================================== High Risk/Reward (HR) Stock section ================================================================== --------- New Plays --------- New Bullish Plays ----------------- Magal Security - MAGS - close: 15.04 change: +1.85 stop: 12.25 Company Description: Magal Security Systems Ltd. develops, manufactures, markets and sells complex computerized security systems, including a line of perimeter security systems and a video motion-detection system that automatically detect and locate intruders and identify the nature of intrusions. The company also offers MagNet, a security management system that integrates the management, control and display of various security systems into a single, real-time database. In addition, it provides video monitoring services. Magal's systems are used in more than 70 countries to protect aircraft, national borders and sensitive facilities, including military bases, power plant installations, airports, postal facilities, prisons and industrial locations, from terrorism, theft and other security threats. Why we like it: Security-related stocks all lifted off in near-vertical fashion in late March and early April, helped along by the mania for shares of TASR. Since peaking in the middle of April though, this group has felt the pull of gravity, coming back into the bases that were built before the irrational moonshot rally. MAGS catches our attention due to the fact that it seems to have found support ABOVE the point where the dramatic rally began and looks like it could be preparing for another bullish move. Before we continue though, it should be understood that this is a HIGH RISK play -- just the fact that the stock advanced 14% today should highlight the volatile nature of this stock. Looking at the actual chart pattern shows why we like the stock though. The initial drop off the April highs came to rest at $12.35, just low enough to fill in the late March gap that kicked off the April insanity. The first bounce didn't go very far, but then MAGS came down to bounce again from just above that low and today's rally came on strong volume. Another reason to classify this as a risky play is that the PnF chart is still bearish, with a downside target of $5. It will take a trade at $17 to finally turn it bullish again, but by then it will once again be too difficult to control risk. Clearly there's still substantial downside risk, but we think there are enough bullish factors and potential reward to justify that risk. One factor in our favor is the fresh bullish cross on the daily Stochastics that completes our bullish divergence setup. Ideal entries would come on a slight pullback near the 10-dma ($14.02). Of course, those traders that would prefer to wait for that PnF Buy signal will want to wait for the move through $17 before playing. Note that when that Buy signal does print, it will carry with it an initial bullish price objective of $25.50. Initial resistance will come in near the 50-dma ($18.34), but we'll use an official target at strong resistance at $20. Due to the large potential upside, we're also using a liberal initial stop at $12.25, just under the low of May 3rd. Annotated Chart of MAGS: Picked on May 5th at $15.04 Change since picked +0.00 Earnings Date 4/28/04 (confirmed) Average Daily Volume = 2.42 mln ================================================================== Stock Splits ================================================================== Announcements ------------- Popular Inc. increases shareholder popularity with a 2-for-1 split and dividend increase Popular Inc. (NASDAQ:BPOP) announced mid session today that its Board of Directors had approved a 2-for-1 stock split of its common shares, and a 18.5 percent increase in their dividend. The payable date for the stock split is July 8th, 2004 to shareholders on record as of June 18th. The dividend is payable on a pre-split basis on July 1st, to shareholders on record as of June 11th. The new dividend payout will be set at 32 cents. About the company: Popular is a $36 billion bank holding company based out of San Juan, Puerto Rico and operates two principal bank subsidiaries, Banco Popular de Puerto Rico and Banco Popular North America. Banco Popular North America operates 100 full service branches in six states, including 17 in Southern California, and reported total assets of $6.1 billion and deposits of $5.1 billion at December 31, 2003. Following regulatory approval, Quaker City will be merged into Banco Popular North America. As a result, Banco Popular will operate 44 full service branches and have consolidated assets of approximately $2.4 billion in Southern California. --- NOC announces dividend hike and 2-for-1 split Northrop Grumman Corp (NYSE:NOC) announced mid session today that its Board of Directors had approved a 2-for-1 stock split of its common shares, and a 15 percent increase in their dividend. The payable date for the stock split is June 21st, 2004 to shareholders on record as of May 28th. After the split there will be approximately 360 million shares outstanding. This is their first stock split in nearly 20 years. The dividend is payable on a pre-split basis on June 5th, to shareholders on record as of May 24th. This is NOC's first dividend increase since 1984. About the company: Northrop Grumman Integrated Systems is a premier aerospace and defense systems integration organization. Headquartered in El Segundo, Calif., it designs, develops, produces and supports integrated systems and subsystems optimized for use on networks. For its government and civil customers worldwide, Integrated Systems delivers best-value solutions, products and services that support military and homeland defense missions in the areas of intelligence, surveillance and reconnaissance; space access; battle management command and control; and integrated strike warfare. ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright (c) 2004 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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